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File for bankruptcy, Malaysia Airlines

MALAYSIA Airlines (MAS) is in dire straits. The ailing carrier announced a massive RM1.2 billion (S$462 million) loss for its 2013 financial year last Tuesday.

For the financial year ended Dec 31, 2013, the airline's loss more than doubled to RM1.15 billion, from RM424.8 million in the previous period. Revenue, however, rose more than 9 per cent to RM15.12 billion from the RM13.75 billion previously.

And, although the airline's management hopes to turn it around this year, no one else shares that optimism.

Hong Leong Bank, for instance, predicted gloomily that the airline would continue to post losses this year (an estimated RM891 million) and next year (an estimated RM490 million).

MAS' continued losses are a recurrent headache for state sovereign wealth fund Khazanah Nasional, which owns 64 per cent of the carrier. The agency has ruled out selling the airline, but perhaps it should consider more drastic options.

Khazanah should come to terms with the fact that MAS, as it is with its current cost structure, cannot hack it. The agency's only option is to close it under creditor protection.

There is nothing dishonourable about that, for Japan Airlines (JAL) also chose the same route. By filing for bankruptcy under Section 176 of the Companies Act, MAS will get rid of a number of problems simultaneously.

The difficulties at the airline stem from legacy issues. Two big ones are overstaffing and lopsided procurement contracts in a range of services, from maintenance to catering.

The new firm that will replace MAS - let's call it NewCo - will have no such issues. It should preferably be run by a tried and tested entrepreneur and it should do exactly as it pleases without any political interference, just as JAL was allowed to.

First, NewCo buys back MAS' aviation rights and assets through an issuance of shares. That will bring Khazanah right back into the game.

Then it proposes to hire such staff as it actually needs from the old MAS' workers - on its own, and revised, terms. No more and no less. Lean and mean should be the order of the day.

The old airline had over 20 unions to deal with. No such thing for NewCo.

Then all procurement contracts will be negotiated on a fresh basis - with the benefit of hindsight and, more importantly, without any political interference.

Malaysia's aviation landscape going forward will be fraught with competition both from within and without.

At home, there is AirAsia and, now, Malindo Air. And out there awaits a host of very tough cookies, from Singapore Airlines to Thai Airways, Cathay Pacific to Emirates.

For MAS to succeed, it must be given every opportunity to compete on a level playing field. Overstaffing, ridiculous union demands and outlandishly skewed procurement contracts are the financial equivalent of having to fight with one hand tied behind one's back.

MAS' creditors will scream. So will its minority shareholders, if there are any left. All that noise can be heard in the courts.

NewCo - the new airline, the lean and mean one - should just get on with it. JAL, the reconstituted one, turned around in six months.